The debate over what will happen to Cyprus quickened as a rescue by the European Union, European Central Bank and International Monetary Fund appeared to fall apart after the small country’s parliament rejected plans to “tax” the savings accounts of most of it citizens.
The EU does not want Cyprus to default, which would serve as proof that Europe still cannot manage its own financial matters. But another bailout of a country that almost certainly will never return to prosperity raises the chance there will be a precedent for future solutions to problems in nations such as Greece and Spain.
Germany and its euro-area allies maintained pressure on the island’s politicians today to raise a planned 5.8 billion euros by drawing funds from Cyprus bank accounts in return for 10 billion euros in external aid.
Austrian Finance Minister Maria Fekter said the demand for Cyprus’s share of the rescue stands and raised the threat of an ECB funding cutoff. Cyprus’s “business model is no longer tenable” and “must be restructured,” German Finance Minister Wolfgang Schaeuble said on ZDF television.
The offer made last weekend “remains on the table,” Schaeuble said in a separate statement. “Adequate precautions” have been taken to ensure the Cyprus vote “will have no negative effect on the rest of the euro zone,” he said. Dutch Finance Minister Jeroen Dijsselbloem, who chairs the meetings of finance ministers, said in a text message that the euro group “stands ready to assist Cyprus in its reform efforts.”